Philippine economy threatened by global crisis

World Bank president Robert Zoellick is worried that the worsening global economic turmoil could “push developing and poor countries” to the edge, already affected by high food and fuel prices.

Zoellick said they are anticipating the serious implications of the global financial crunch to the balance of payments (BoP) of developing and poor countries. Since these states are dependent on export production to create money and imports to support internal food and oil requirements,a slowdown of export demands and higher import prices could push the deficits to near-critical levels.

Without external financial support from global banks, growth may stunt and even lead to serious destabilization of governments. The Asian Development Bank (ADB) and the World Bank already warned governments of this potential time-bomb months before this global financial crisis hit us. With an estimated 3 percent growth in the global economy, says the World Bank, poor governments could face serious security threats from its inability to satisfy market demands for food and imported fuel.

This early, the WB is seeing poor and developing countries having a hard time satisfying local demands for imported goods. Equity markets are also being hit hard and we are also seeing a dent in corporate borrowing due to lack of cash.

With a slowdown in the global economy, the estimated $1.3 trillion cost of this huge financial disaster could balloon to $1.5 trillion in the next few months, says International Monetary Fund Managing Director Dominique Strauss-Kahn.

Here in the Philippines, government is expecting an 80 billion deficit. Budget secretary Rolando Andaya said, government may have to borrow this from global banks. With a financial crunch, government may find it difficult to get creditors. Government may have to rely on internal borrowings or possibly raise more taxes to cope with the global financial crunch.

With more taxes, government is risking a potential wide-spread destabilization. That will surely worsen the financial situation and could lead to an explosive situation.